TheCorporateCounsel.net

In light of the SEC’s recent trend of tacking on “disclosure controls” violations to charges about non-financial disclosures, I was somewhat heartened to see that the recent “director independence” enforcement action reflected a settlement with the former director, but no action against the company.

It appears the company took standard steps to collect info about director relationships that might affect the “independence” determination:

– Providing a questionnaire with a non-exclusive list of relationships that could affect independence and asking both broad & specific questions to gather information,

– Instructing D&Os to “exercise great care” in providing answers (worth a shot!), and

– Giving the director the opportunity to review and comment on the proxy statement before it was published.

Alas! Although it’s still nice the company wasn’t charged with wrongdoing here, it’s a stretch to rely on this settlement for comfort that these steps will always be adequate. That’s because, in this particular case, it appears the SEC just brought charges relating to proxy disclosures under Exchange Act Section 14(a) and Rule 14a-9 (even though this disclosure had been incorporated into the company’s Form 10-K). If there were no Section 13(a) charges, a disclosure controls charge would be off the table.

– Liz Dunshee