December 17, 2009

SEC Adopts New Executive Compensation Rules – and Posts Adopting Release!

Not only did the SEC adopt new proxy disclosure enhancement rules yesterday at its open Commission meeting, it actually posted the adopting release later in the day (a same-day practice that the PCAOB follows often). Here is the SEC’s press release – and the SEC Chair’s opening statement. We are posting memos regarding these new rules in our “Law Firm Memos” Portal, with a direct link to these memos from our “Hot Box” on the home page.

The Big Question: When Do the SEC’s New Rules Take Effect?

The reason for the hurry is simple – these new rules apply to the coming proxy season as they are effective February 28th. My guess is that the effective date is pushed out so far because a “major” rulemaking requires a 60-day waiting period before implementation – and perhaps the SEC has deemed this a “major” rulemaking (or the OMB forced that determination upon the SEC). The “major rule” determination comes out of SBREFA – the “Small Business Regulatory Enforcement Fairness Act.”

Unfortunately, the SEC barely addressed the issue of compliance dates during its open Commission meeting – and then continued to be opaque in the adopting release (the release says nothing about effective dates other than the February 28th date on the cover). During the course of yesterday, I easily received over 100 emails and calls on this topic and continue to do so. So I imagine Corp Fin is receiving many more.

We are assuming that the February 28th effective date applies to the filing of proxy statements, not the annual meeting dates. Since there is no transition discussion in the adopting release (as Mark Borges has blogged), I’m not sure how this effective date applies to preliminary vs. definitive proxy statements for those that straddle both sides of this date. Or what about companies that file their Form 10-Ks in early February who decide to include the Part III information when they file? If you decide to voluntarily comply beforehand, do you also need to comply with the old rules (only issue is whether to use new or old SCT rules)? I’ll update this blog as we find out more on this critical topic.

I know complying with these new rules is gonna be a real bear for those of you that need to revise D&O questionnaires – or send out supplemental ones – so we just pushed up our webcast to January 7th – “The Latest Developments: Your Upcoming Proxy Disclosures – What You Need to Do Now!” – featuring Mark Borges, Alan Dye, Dave Lynn and Ron Mueller. And to handle the other new SEC rules that don’t deal with compensation issues, we just announced a companion webcast on – “How to Implement the SEC’s New Rules for This Proxy Season” – featuring Marty Dunn, Amy Goodman, Ning Chiu, Howard Dicker and Dave Lynn to be held on January 6th.

The Surprise: Disclosure of How Diversity Is Considered in the Director Nomination Process

Much of the SEC’s rulemaking was anticipated (although the timing was feared – I bet more than one holiday plan has been ruined), but I’m not sure many expected the SEC to adopt its proposal to require disclosure of how diversity is considered in the director nomination process. I imagine boards will be adopting diversity policies in the very near future so that they have something to disclose…we’ll be discussing this during our January 6th webcast.

More on “SEC Re-Opens Proxy Access Comment Period: What Does It Mean?”

Two days ago, I blogged about what the SEC’s “re-opening” of the proxy access period might mean. I have been troubled by the possible conflicting meanings between what the SEC’s press release on the matter says – and what is stated in the extension release.

And here is my conclusion after further pondering: the comment period is not really “re-opened,” meaning that the SEC is not seeking hordes of new comment letters on its proposal. Rather, I think the SEC seeks something more limited in scope – they only want folks to focus on commenting on the “additional data and related analyses” (eg. costs) provided in the comment letters received so far, particularly these three from third-parties mentioned in the extension release:

NERA’s Report on Capital Formation Efficiency (starts at page 126) submitted by BRT
BRT Study on “Why Some Banks Perform Better During the Credit Crisis? A Cross-Country Study of the Impact of Governance and Regulation” submitted by the BRT
Beth Young’s “Private Ordering Study” submitted by The Corporate Library, CII and

The SEC also wants comments on this new study from its Division of Risk, Strategy & Financial Innovation regarding share ownership and holding patterns (the data was derived from Schedule 13Fs filed with the SEC).

So as strange as “commenting upon the comments” may seem, the SEC is probably trying to ensure it gets all the facts straight (and that its own study is officially in the rulemaking record) before it rulemakes in a very controversial area…

Poll: How Many Proxy Access Comment Letters This Decade?

Take a moment to participate in this anonymous poll about how many comment letters have been submitted to the SEC on its various reiterations of proxy access proposals since 2003 – the total does include form letters (I’ll post the answer after the holidays):

Online Surveys & Market Research

– Broc Romanek