New SEC Rules to Enhance Investor Confidence and Corporate Governance
July 6th, 2009
On Wednesday, July 1, 2009, the Securities and Exchange Commission announced changes to its policies. The Commission approved three initiatives intended to improve accountability of companies to their shareholders:
1. Shareholder Approval of Executive Compensation of TARP Recipients
Companies that receive financial assistance from the Troubled Asset Relief Program (TARP) will have to provide a separate shareholder vote on executive compensation in proxy solicitations for their annual meeting. Yet smaller reporting companies may be excluded from the requirement to include a compensation discussion and analysis in the proxy statements.
2. Proxy Disclosure & Solicitation Enhancement
Companies will be required to enhance their disclosure on compensation and corporate governance. The new rules will require directors to provide better disclosure of their experience. Companies will have to describe the qualifications of their directors, top executives, and board nominees. Executive compensation disclosure requirements will be also enhanced, including the reporting of annual and option awards to directors and executives. Among other things, companies will have to disclose how their leadership structure was developed, as well as discuss the effect of the companies’ compensation policies on their risk.
3. Discretionary Proxy Voting by Broker-Dealers
Under the new rules, the brokers will not be allowed to vote on behalf of shareholders without instructions to do so. Broker discretionary voting for all election of directors will be eliminated.
The SEC is currently seeking pubic comments regarding the proposed enactments.
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