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February 01, 2010
SEC Ruling on Proxy Disclosure Is Likely to Lead to Increased Shareowner Activism
    by Robert Kropp

An overview by the Corporate Library details some of the possible effects of the ruling on shareowner actions in what could shape up to be a critically important proxy season.


In the aftermath of December’s adoption by the Securities and Exchange Commission (SEC) of amendments to enhance information provided in proxy solicitations, the Corporate Library has published an overview entitled “What To Expect During Proxy Season 2010.” The report is available for free download on the Corporate Library’s website.

The SEC’s ruling on Proxy Disclosure Enhancements requires companies to disclose in their proxy statements the relationship of their compensation policies and practices to risk management, the backgrounds and qualifications of directors, legal actions involving executive officers or directors, diversity in selection of directors, board oversight of risk management, awarding of stock to executives and directors, and potential conflicts of interest of compensation consultants.

When the ruling was announced, SEC Chairman Mary Schapiro said, “Accountability is impossible without transparency. By adopting these rules, we will improve the disclosure around risk, compensation, and corporate governance, thereby increasing accountability and directly benefiting investors.”

The new rules go into effect on February 28th.

The Corporate Library’s report states, “The SEC’s new ‘Proxy Disclosure Enhancements’ will likely dominate the coming season,” and predicts that shareowners will focus their attention on a number of issues associated with improved corporate disclosure.

The report expects increased scrutiny by shareowners of board-level risk management practices, director qualifications and experience, and board diversity. It anticipates more detailed explanations by companies of board leadership practices, possibly leading to more boards deciding to split the roles of CEO and Chairman.

The report also anticipates increased scrutiny of executive compensation practices, and new disclosure requirements for compensation consultants. Finally, the report expects that publication of proxy voting outcomes will be “dramatically accelerated.”

Already this year, 30 activist institutional investors, led by Walden Asset Management, have sent letters to 17 financial institutions urging them to conduct an annual advisory vote on executive pay.

Furthermore, the guidance issued last week by the SEC on climate change disclosure at publicly traded companies is likely to provide activist shareowners with added encouragement to engage with companies on climate-associated risks and opportunities. And if the highly controversial Supreme Court decision eliminating restrictions on corporate political spending galvanizes activist shareowners to demand enhanced disclosure by companies, then the 2010 proxy season should be the most interesting one in years.

 

 
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