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: Institutional Shareholder Services -- Corporate Governance Blog

The SEC Finalizes New Disclosure RulesSubmitted by: Ted Allen, Publications

The SEC today voted 4-1 to finalize a new set of proxy disclosure rules on compensation risks and director qualifications with a few minor revisions.

Among the changes to the proposed rule is a new requirement that nominating committees disclose whether they consider diversity as a factor in reviewing potential nominees, and to assess the implementation of any diversity policies. The rule does not define what constitutes diversity; SEC staffers said they thought it was appropriate for companies to decide how they define that term.

The agency staff also tweaked new provisions on compensation risk to require disclosure only of those risks that are ?reasonably likely to have a material adverse effect? on companies. This provision is not limited to the compensation received by named executive officers and would encompass the pay incentives for other employees.

The agency also revised a new mandate on disclosure of other services performed by compensation consultants to include a $120,000 minimum threshold to trigger disclosure. The final rule did not include various proxy solicitation rule changes that were in the original rulemaking release issued in July; the staff recommended deferring those changes until consideration of the SEC?s proposed proxy access rule. The new disclosure rules will apply to companies with fiscal years ending on or after Dec. 20, 2009, so they will be effect for virtually all issuers during the 2010 proxy season.

The rules require more disclosure on the qualifications of director nominees and how their skills would help them to serve on the board and perform their specific committee assignments. In addition, companies would have to provide details on outside directorships held during the past five years, instead of only current board memberships. Board nominees also would have to disclose all the legal proceedings they have been a party to over the past 10 years (except for private litigation), instead of the current requirement of five years.

Companies would have to explain why they decided to appoint a non-executive chairman or chose to combine the roles of board chair and CEO, but the new rules do not favor one leadership structure over another.

The new rules also include a change on the disclosure of equity compensation. In their summary compensation tables, companies would be required to report the aggregate grant date fair value of equity granted during the previous year, instead of the current accounting value of previous grants.

The rules include a new requirement for companies to disclose proxy voting results in a Form 8-K filing within four business days after a shareholder meeting, instead of several months later in a 10-Q filing. If final results are not available, companies would have to disclose preliminary results and then disclose final results within four business days once those are ready.

Commissioner Kathleen Casey voted against the rulemaking release. While she said she supported most of the new rules, she expressed concern about mandated disclosure on a ?person-by-person basis? on the board?s selection of particular nominees. She said such an approach would unduly intrude on board decisions and would undercut the whole-board approach that many boards take to select their nominees. She also objected to the new diversity provision?s mandate that a board assess how it has implemented any diversity policy.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on December 16, 2009 (boomark / email).