October 12, 2010

Getting Ready for Your Next Proxy Statement: Staff Comments on Governance Disclosure

Over the last few months, we have been so focused on Dodd-Frank Act and its regulatory aftermath, I think that now more than ever we should dedicate some continuing attention to what the Staff has been asking for in issuer disclosures through the review process, particularly given the Staff’s general view (notably expressed at last year’s Proxy Disclosure Conference) that we should all be cognizant of their positions as expressed through the comment process and act accordingly when drafting disclosures for any issuers. One area that was certainly ripe for Staff comments this year was the new corporate governance disclosures that were adopted at the end of 2009 as a part of the Proxy Disclosure Enhancements rulemaking.

Other than comments raising questions about disclosure items that were just missed entirely, the Staff’s comments on the governance disclosures tended to deal with a few common issues. On the disclosure requirement requiring a discussion of director qualifications, the Staff has raised comments asking for more details concerning how the qualifications were relevant to the determination that the person should be nominated as a director. The Staff seems to be very much looking for individualized disclosure with a fair amount of detail for each director. (And it wasn’t just the Staff commenting on the director qualifications disclosure – Chairman Schapiro incorporated a comparison of “good” disclosure and “bad” disclosure in a speech to the Stanford Directors’ College back in June 2010.)

With regard to the board leadership disclosure, it was usually the case that when a company has a combined Chairman and CEO, the company felt compelled to go in a lot of detail as to why that made sense for the company and this usually didn’t draw a Staff comment, unless the company failed to include an explanation of how the combined Chairman and CEO made particular sense for the company given its circumstances. By contrast, when companies had a split Chairman and CEO, there was a tendency toward providing less explanation, perhaps because that structure is perceived as the “good governance” structure. As a result, the Staff often raised a comment asking for more detail as to the rationale for the split Chairman/CEO leadership structure.

Another comment that the Staff has raised seeks disclosure of how the leadership structure affects the company’s risk oversight. Many companies seemed to have either overlooked this item or did not fully comprehend its meaning, and in fact it is perfectly fine to say that the leadership structure does not affect risk oversight — it is just that the Staff expects an affirmative obligation to say something about the relationship.

Lastly, if the staff saw the word “diversity” somewhere in a company’s disclosure regarding director qualifications, then it is likely that the Staff would ask for disclosure of the company’s diversity policy and how it is implemented and monitored.

For more analysis of the latest comment letter trends, be sure to join us on October 20th for the webcast “The ‘Former’ Corp Fin Staff Speaks on Proxy Access & Dodd-Frank

Beware of “Steven Cooper”

The SEC Staff recently put out an Investor Alert warning of yet another Staff impersonator, using the name “Steven Cooper” and some purported correspondence to a fake SEC employee by the name of “Gordon Green.” His rap is kind of messed up, because he is telling people that he can provide assistance with settling federal tax obligations with the IRS. It is odd to me that this imposter picked the SEC as his fake employer, since when you say you are from the SEC in some parts of the country they think you mean the Southeast Conference.

More on our “Proxy Season Blog”

Even with the proxy season mostly done, we are still posting new items regularly on our “Proxy Season Blog” for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– It’s Time for Summary Proxy Statements
– Lawmakers Consider Shareholder Approval of Political Spending
– Some Thoughts on How to Overcome the Challenges of Disclosing Voting Percentages
– Retail Investors Filed Most of 2010’s Majority-Backed Proposals
– 6 Directors Receive Support from Less than One-Third of Shareholders

– Dave Lynn