SEC Approves Proxy Disclosure Rules | Directorship | Boardroom Intelligence

SEC Approves Proxy Disclosure Rules Directorship Boardroom Intelligence

Directorship
Saturday December 26, 2009 *

SEC Approves Proxy Disclosure RulesRevisions improve risk, compensation and corporate governance information *

by Mary Helen Gillespie December 16, 2009 *

The Securities and Exchange Commission today voted 4-1 in favor of revising proxy disclosure rules to improve and increase risk, compensation and corporate governance information for shareholders. *

The rules, which go into effect Feb. 28, 2010, increase accountability for directors and company executives to ensure that investors clearly understand:Whether a company’s compensation policies and practices are likely to increase the firm’s risk exposure.*

- The value of stock and option awards granted to company executives and directors.
- The background and qualifications of directors and board nominees.
- How an individual board defines diversity when nominating director candidates.
- The role the board’s leadership structure plays in risk oversight.
- How a compensation consultant retained by a board could create the possible perception of a conflict of interest.*

SEC Chairman Mary L. Schapiro said the proxy disclosure rules advance “good” corporate governance by holding directors and officers accountable for their behavior and decisions. *
“But accountability is impossible without transparency. After all, shareholders are the owners of our publicly traded companies. Yet owners cannot responsibly exercise their oversight without good information about the issues that drive voting decisions,” Schapiro said. *

The new rules, proposed in July, also demand more timely public disclosure of the results of shareholder meetings. *

Irv Becker, national practice leader of executive compensation for the Hay Group, said the new proxy rules change the scope of a board’s compensation committee to include reviews not only of top executives but of highly paid employees across the organization. *

“In the past, compensation committees did not have to look at a sales incentive or a trading plan. This requires [that] an organization develop an inventory of all incentive plans and elevate the most material and risky of those plans to be reviewed by the compensation committee. It won’t overwhelm the compensation committee, the burden will be for the HR team,” he said. And these rules will require reviews across all industries, not just financial services. For example, a large pharmaceutical company with a global sales force might find an incentive plan is structured in a way that could lead to individual “bad behavior” and corporate reputation risk. *

“It’s a process that should be happening to make sure that all incentive plans are aligned with the current strategy of the company,” Becker said.*

Commissioner Kathleen L. Casey voted against the proxy release, saying that while she supported the bulk of the new rules, she disagreed with the requirement of mandated disclosure on a “person-by-person basis” of board nominees. Such an approach “unduly intrudes on a board’s ability to operate,” she said. Casey also rejected the methodology for defining diversity on a company-by-company basis.*

Commissioner Luis A. Aguilar said the diversity rule was an important first step “to aiding an investor’s ability to assess a company’s commitment to developing and maintaining a diverse board.” He noted that during the public comment period for the proxy disclosure rules, approximately 90 percent of letters expressed direct support for the disclosure of information related to the race and gender diversity of a board.*

The commission also voted 5-0 to approve rules to enhance the custody controls that apply to investment advisers, safeguards that developed directly from the Bernard Madoff scandal and other recent Ponzi frauds where investment advisers misappropriated investor assets. Under the new rules, advisers will be subject at least annually to a surprise exam by an independent auditor who would be required to notify the SEC within 24 hours of any suspected material discrepancies or missing assets. In addition to the surprise exam, any entity that holds client assets–advisers, affiliates, or operationally independent affiliates–must undergo an annual review of custody controls by an independent accountant. *

Commissioner Troy A. Paredes said the surprise exams and independent audits help to strike the right balance but “do not substitute for investor diligence and care.” Investors, he said, “must be alert to warning signs of misconduct.” *

Read original post: http://www.directorship.com/sec-approves-proxy-disclosure-rules/

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http://dreamlearndobecome.blogspot.com This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.