Many have long been complaining that the SEC’s rules have caused the length of disclosure documents to become untenable, a sentiment probably best reflected in this speech by SEC Commissioner Gallagher in which he said “proxy statements now resemble law school text books.”
While I agree that the continued layering of more rules has partially been to blame for the ballooning of proxy statements, I feel some of the blame should be shared by those that draft the documents. Too many continue to view the proxy as a compliance document rather than as a way to really reach shareholders and tell a story. In other words, to make the documents “usable.”
In my latest “Take Two Video” about usability for disclosures, I provide specific examples of companies that have reduced their proxy lengths dramatically – while at the same time telling a story and making the disclosure usable, with an end result of significantly improving their say-on-pay results:
Can the SEC’s Rules Use Spring Cleaning? Yes, But…
I do believe the SEC’s rules could use some work (as all rules inevitably need), including rewriting them in plain English – and fixing some broken aspects, such as this problem identified by a member:
I think the rules do make things complicated. The same grant may have to be explained several different times in different ways, so the rules do add to the complexity. I think it’s a function of those tables myself and the strict rules about what goes in what table. If they would just allow people a chart with their different programs and what was awarded under each type of comp, without the need to come to a “total” and without going through all the historical stuff of what’s outstanding etc., that would simplify it a lot. The requirement to explain why they paid you what they did, that definitely complicates things.
I remember doing this the very first year when I went in-house and I realized that I had to repeat the same thing over and over because (a) different tables require the reporting of the same grant and an explanation and (b) people are paid what they are for one or two main reasons (how the business did mostly) – but you have to make it sound as if each component had a separate criteria, so that always required a repeat of the evaluation by type of pay, rather than an explanation of how the performance drive the totality of the pay.
But a rewrite of the rules is a huge undertaking. One that likely would have to be done in waves over many years. Perhaps a decade…
Are Annual Reports Destined for the Dustbin?
I love this blog entitled “Is the Annual Report a Thing of the Past?” by Sharon Merrill’s Maureen Wolff that talks about the use of video and more. Here is Maureen’s central point:
This is probably the best the way to view the report’s value: How does it fit in with all of the other communications that we’re conducting?
– Broc Romanek