March 20, 2007

ABA Spring Meeting Notes: Dialogue with the Corp Fin Director

In our “Conference Notes” Practice Area, we posted some notes from this weekend’s Spring Meeting of the ABA’s Business Law Section. This includes notes from the popular panel: “Dialogue with the Director of the SEC’s Division of Corporation Finance” – and notes from an executive compensation disclosure panel.

Corp Fin Review of Executive Compensation Disclosures

Here is an excerpt from the notes from the Corp Fin Director Dialogue panel regarding the Staff’s plans to review compensation disclosures:

“The Staff is gearing up for an organized review of the new executive compensation disclosures, which will include review of the disclosure provided pursuant to revised Item 404 of Regulation S-K and new Item 407 of S-K. Mr. White said the Staff will select a “critical mass” of companies for review (in the hundreds) and targeted reviews will be performed. Comment letters will not be issued immediately, but instead the Staff will wait until it has seen enough filings to ensure that the comments will be consistent when issued. Mr. White would not offer any assurance that companies would only receive futures comments, and that they may need to amend their Form 10-Ks because the Staff considers these disclosures to be “live.”

After this review, the Staff will issue a report of their observations regarding the new disclosures, similar to the Fortune 500 Report issued in 2003 (now available on Corp Fin’s Accounting and Financial Reporting webpage). The Staff may also issue new interpretations or even propose revisions to the rules based on this review. Mr. White expects these projects to be completed by the Fall (which in his view goes through December) so that any revisions will be completed in time for next proxy season.

Moreover, the Staff will be data tagging the executive compensation data from a select group of companies, probably the 500 largest or some such number of large companies, including their Summary Compensation Table. The Staff will not be tagging the footnote disclosure, but will provide links to the proxy statements where that information can be retrieved.

Mr. White also said that the data tagging will allow users to not only compare disclosure across companies, but will allow them to manipulate the data. For example, a user will be able to replace the FAS 123(R) numbers in the SCT with the fair value numbers and recalculate compensation based on those new values. This project is also expected to be completed by the Fall.”

By the way, the tagging of data was discussed during yesterday’s SEC Roundtable on XBRL – here are notes about that roundtable from FEI.

Latest Analysis of How Funds Vote

With each proxy season wilder than the last, keeping track of how funds vote becomes more important. The Corporate Library has now published their analysis of how mutual funds voted last year. The report analyzes the 2006 voting records of 29 large mutual fund families, which includes the voting records of 702 funds, amounting to more than 1.2 million voting decisions.

Here are some of the study’s findings:

– Funds supported 92% of management-sponsored proposals in 2006 on average, up from 89% in 2004. A small number of management resolutions propose reforms that shareholders have called for in the past, yet receive much higher support when proposed by management. For example: Dreyfus, which voted in favor of no shareholder resolutions to declassify the board in 2006, voted for 98% of management proposals to adopt the same reform.

– Putnam was the fund family least likely to support management-sponsored resolutions, with an average 79% support. American and Ameriprise had the highest levels of support for management resolutions, with average support of 97%.

– Funds voted in favor of 37% of shareholder-sponsored resolutions, on average. Governance-related resolutions, which comprised 76% of all shareholder-sponsored resolutions published in proxies in 2006, received 44% support from funds. This figure has increased over the three years spanned by this study for 14 of the largest fund families, from 37% in 2004.

– Among shareholder resolutions, those proposing board declassification received the highest level of fund support – 87.7%, on average – in the 2006 proxy season. The largest category of shareholder resolution, those urging majority affirmative support for uncontested director elections, achieved 60% support from funds, on average, up significantly over the past three years.