Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

Yesterday, Mary L. Schapiro, Chairperson of the SEC, addressed the National Association of Corporate Directors. She reviewed several recent SEC proxy rules which pre-date Dodd-Frank and gave a timetable regarding future Dodd-Frank rulemaking.

Ms. Schapiro called out in particular the new proxy rules requiring disclosure of the factors in a director’s background and skill set that led the Board to select that person. She strongly suggested that vague generalizations, such as “our directors each have integrity, sound business judgement and honesty” do not hit the mark. Instead, the Commission is looking for detailed descriptions of how each individual director’s background enhances a Board and the Company.

She also noted the SEC’s new disclosure requirement that boards explain how they oversee risk. Again, sweeping generalities such as “risk is overseen by the board as a whole” did not find favor in her eyes.

Regarding Dodd-Frank rulemaking, Ms. Schapiro stated that the next proposal would concern rules that stock exchanges mandate new standards of independence for compensation committees. This disclosure would apply to all shareholder meetings taking place on or after July 21, 2011 and she expected the proposal would be published before the end of 2010.

Next summer, the Commission will be proposing rules on the disclosure on the median compensation of all employees of a company, and the ratio of CEO compensation to the median.

The Summer of 2011 will also see proposals to require disclosure of the relationship between senior executives’ compensation and the company’s financial performance; whether employees or directors can hedge against a decline in stock price; and standards for clawback policies (reclaiming executive compensation in the event of a financial restatement).

As to the rulemaking process, the Chairperson stated that SEC staff have been instructed to make every effort to accept requests for face-to-face meetings with paerties affected by the rules. Memoranda and materials regarding these meetings will be posed on line.

Finally, Ms. Schapiro reminded those present at the meeting that the SEC’s proxy voting infrastructure project, referred to as “proxy plumbing,” is ongoing. Major areas of concern are the role of proxy advisory firms; whether the OBO/NOBO system enhances or hinders communication with shareholders; and whether voting totals are being accurately tallied, which involves inquiries into over- and under-voting, and empty voting. If you would like to know more about these proxy plumbing matters, please contact the author.

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