TheCorporateCounsel.net

April 7, 2009

The SEC’s Corporate Governance Agenda Comes into Focus

SEC Chairman Mary Schapiro laid out the agency’s upcoming regulatory agenda in a speech yesterday at the Spring Meeting of the Council of Institutional Investors. Now a few months into her new role, Chairman Schapiro has a vision for the SEC’s top priorities over the next several months, which will, not surprisingly, involve a lot of new rules for public companies. These rules will build on some common themes, including director accountability and enhanced disclosure about the role of risk in corporate decision-making.

The upcoming rulemaking agenda looks like this:

1. New rules designed to limit short sales in a down market will be considered at an open meeting tomorrow, followed by a roundtable.

2. In May, the SEC will consider a proxy access proposal, and in the process the Commission is considering the 2003 and 2007 proposals with “fresh eyes,” as well as proposed Delaware law changes.

3. In June, the SEC will consider whether to propose rules requiring enhanced disclosure about the experience, qualifications and skills of director nominees.

4. The SEC will also consider whether boards should disclose the reasons for selecting a particular leadership structure, such as an independent chair, a non-independent chair, or a combined CEO/chair.

5. Rule proposals are being developed to address how a company and its board of directors manage risks, both generally and in the context of compensation.

6. The SEC will consider new rules relating to compensation. The rules would be directed at making sure that shareholders fully understand how compensation structures and practices drive an executive’s risk taking. Further, the Commission will consider whether greater disclosure is needed about a company’s overall compensation approach – beyond decisions with respect to the highest paid officers – as well as enhanced disclosure about compensation consultant conflicts of interest.

Not mentioned in the speech, but certainly looming on the horizon, is the proposed change to the NYSE’s Rule 452, for which the comment period has now closed.

In addition to the proposals that are oriented toward public companies, Chairman Schapiro indicated the SEC is considering a number of other reform measures (some of which will require legislation) in the financial services area, including issues with respect to custody, the respective roles of brokers-dealers and investment advisers, registering hedge fund advisers (and potentially the hedge funds themselves), more disclosure about credit rating agencies, oversight of the credit default swap market, enhanced standards for money market funds, municipal securities disclosure and disclosure about asset-backed securities.

With these significant changes to executive compensation disclosure coming soon – and no doubt in time for next year’s proxy season – be sure to sign up now for the “4th Annual Proxy Disclosure Conference” and the “6th Annual Executive Compensation Conference.” The conferences will be live on November 9-10 in San Francisco and via webcast. You still have a few more weeks (until April 24th) to get “half off” early bird rates.

Blaming Mutual Funds for Pay Excesses

In this latest report sponsored by AFSCME, The Corporate Library and the Shareowner Education Network, the relationship between mutual fund voting patterns and excessive executive compensation is examined in detail. Dramatically named “Compensation Accomplices: Mutual Funds and the Overpaid American CEO,” the report outlines how, in 2007-2008, many mutual funds voted in favor of management proposals increasing executive compensation packages, while voting against shareholder proposals that seek to align pay with performance. I don’t know about you, but it doesn’t exactly knock me out of my chair with surprise to find out that mutual funds often vote with management. The report, however, notes that the level of support seems to continue unabated despite the level of public outrage over executive compensation.

The study does note a contrary trend that I think everyone has probably noticed in the past couple of years – mutual funds seem to be increasingly willing to withhold support or vote against directors serving on compensation committees of companies where pay practices are perceived as subpar.

One limiting aspect of the study is that the data only goes through June 2008, so the full impact of the recent “torches and pitchforks” attitude toward compensation is not fully reflected.

Raising Equity Capital in a Turbulent Market

We have posted the transcript for the recent webcast: “Raising Equity Capital in a Turbulent Market.” Also be sure to check out the excellent course materials posted for this webcast.

– Dave Lynn