SEC Commissioner Luis A. Aguilar recently gave a speech setting forth his views on proxy disclosure.  Some of the more interesting points were:

•  Mr. Aguilar noted that issuers should go beyond the requirements in compensation risk disclosures: “A key provision of the 2009 amendments is Item 402(s) of Regulation S-K, which requires a narrative discussion of a company’s compensation policies and practices relating to risk management. Although, by its terms, this rule requires such disclosure only “to the extent” that risks arising from the issuer’s compensation policies and practices are “reasonably likely to have a material adverse effect,” it would be prudent and appropriate for all issuers to discuss the role of compensation in risk management in their proxy statements.”
• A theme of the Commissioner’s speech was to avoid boilerplate disclosure.  For instance, he stated “Many issuers provide only minimal discussion in response to the board leadership question. If the same person serves as both principal executive officer and chairman of the board, the reason given is often simply “efficiency,” “streamlined decision-making,” or “depth of knowledge.”  . . . Although Item 407(h) specifically requires the disclosure to indicate why the registrant has determined that its leadership structure is appropriate “given the specific characteristics or circumstances of the registrant,” such analysis is often missing.”
• U.S. proxy rules require companies to disclose whether, and if so how, a corporate board or nominating committee considers diversity in identifying nominees for director.  Although the rules do not define diversity for this purpose, and the adopting release acknowledges that companies may define diversity in various ways, Mr. Aguilar stated “numerous commenters cited by the Commission in the adopting release made clear that investors are particularly interested in board policies regarding gender and/or racial diversity, and find such information useful in making voting and investment decisions.” He continued to state that “The proxy statement should disclose how the board defines diversity. If a company has no women or persons of color on its board, it should state whether or not it has considered increasing the size of its board to enhance diversity — and if not, why.”

As noted by Ning Chiu in this blog, Mr. Aguilar’s views may not be in harmony with those of at least one other Commissioner, who recently gave a speech and stated the governance aspects of Dodd-Frank rulemakings appear, in his view, to “affect the behavior of companies and boards rather than to provide information that investors would find useful.”

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