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Article by Edward P. Bromley III and Greg E. Gordon
Recently, Securities and Exchange Commission Chairman Mary Schapiro
addressed the Spring 2009 meeting of the Council of Institutional Investors.
Chairman Schapiro used the opportunity to discuss the Commission's
regulatory agenda and her thoughts on a number of initiatives designed to
enhance disclosure and corporate governance practices. Chairman Schapiro
emphasized that the Commission's disclosure regime "is generally working
well" but noted that there is room for improvement. In her address, Chairman
Schapiro described the following disclosure and corporate governance
initiatives that are expected to be considered by the Commission:
a.. In May, the Commission will consider a new proposal to "ensure that a
company's owners have a meaningful opportunity to nominate directors." As
part of its process, the Commission is reviewing its 2003 and 2007 proposed
rules designed to enhance shareholder proxy access by allowing 5 percent
shareholders to nominate a director candidate using the company's proxy
card, instead of bearing the time and cost associated with a separate proxy
solicitation.
b.. In June, the Commission will consider whether to propose rules that
would require enhanced disclosure of the business experience, qualification
and skills of director nominees. Currently, Item 401 of Regulation S-K only
requires a brief description of the nominee's business experience over the
past five years. Chairman Schapiro stated that she wants to make sure
shareholders have the information necessary to make a sound voting decision,
and that the current requirement "may not be sufficient in today's business
environment."
c.. The Commission will consider whether the board of directors should be
required to disclose its reasoning for choosing to have an independent
chairman, a chairman who is not independent or a chairman who is also the
company's chief executive officer.
d.. Noting that "compensation drives behavior," Chairman Schapiro
announced that the Commission will consider whether its compensation
disclosure rules are designed to elicit sufficient information about how a
company's compensation structure encourages executive risk-taking.
Specifically, the Commission will consider whether it should require
disclosure about how a company and its board manage risk, both generally and
in the context of setting compensation.
e.. The Commission will also consider whether to revise its current
executive compensation disclosure rules to require companies to discuss
their company-wide compensation philosophy for all employees and any
conflicts of interest arising out of management's and the board's use of
compensation consultants.