SEC Seeks Disclosures on Corporate Elections
U.S. publicly traded companies and some mutual funds would have to disclose how they pick board candidates and tell shareholders how to contact directors under a rule proposed by the Securities and Exchange Commission.
“We hope that the proposals we are considering today will provide better information to investors about the way board nominees are identified, evaluated and selected, as well as a better understanding of how shareholders can interact with directors,” said SEC Chairman William H. Donaldson at a commission meeting Wednesday.
The proposal is the first of two SEC initiatives designed to give shareholders more influence over the election of directors to company boards. The SEC plans to propose a second set of rules in September to give shareholders the right to put their own candidates on company ballots under some circumstances.
Shareholders have said existing rules make challenges to corporate leadership expensive to mount and difficult to win.
The disclosure plan, which was approved unanimously by the SEC’s five commissioners, will undergo 30 days of public comment before the SEC gives final approval.
Some shareholder advocates said the SEC’s proposal would do little to enhance the power of investors.
“The proposed rules on nominating process disclosure will do nothing to solve the problem of unresponsive boards of directors,” said Gerald McEntee, president of the American Federation of State, County and Municipal Employees. “The nomination process is a closed loop totally controlled by current directors and management. No amount of disclosure is going to change that.”
The SEC’s proposal requires disclosure of how board nominees are identified as possible directors, what criteria are used by the nominating committee to screen candidates, and what qualifications are considered important.
The plan also calls for the companies to detail how shareholders can propose their own nominees.
Mutual funds would be covered by the proposed rule if they file proxies with the SEC.
