SEC Publishes Staff Report On Proxy Process Review

The Securities and Exchange Commission has published a report prepared by its Division of Corporation Finance concerning the Division's review of the Commission's rules and regulations regarding the nomination and election of directors. The staff report notes the need to improve the existing proxy process and recommends action in two areas: improved disclosure and improved shareholder access to the director nomination process. The report recommends the following actions:

  • Require more robust disclosure of the nominating committee processes of public companies, including the consideration of candidates recommended by shareholders.

  • Require specific disclosure of the processes by which shareholders may communicate with the directors of the companies in which they invest.
  • Require that major, long-term shareholders (or groups of long-term shareholders) be provided access to company proxy materials to nominate directors, where there are objective criteria that indicate that shareholders may not have had adequate access to an effective proxy process. Examples of events that would trigger this access could include situations where the results of the proxy process are not acted on by companies or where there is substantial shareholder dissatisfaction with the operation of the proxy process.

SEC Chairman William H. Donaldson said, "An effective proxy process has never been more important to restoring investor confidence. We have worked and continue to work with the markets to put in place listing standards and rules that increase both the role of independent directors and the voice of shareholders. The next step is to assure that the proxy process reinforces these important advances. The staff is to be commended for its work in gathering the views of the public and preparing timely and responsible recommendations. I have asked them to prepare rule proposals that would effect each of the recommendations in the report. I hope that the Commission will be able to consider such proposals as early as August with regard to the disclosure recommendations and as early as September with regard to the proxy access recommendation. I look forward to the Commission's deliberations and to public discussion regarding those proposals."

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