SEC Seeks Transparency in Corporate Board Nominations, Communications

So who are the people who sit on corporate boards of directors? How are they chosen? How do shareholders communicate with directors? These issues are at the heart of a rule change proposed this week by the Securities and Exchange Commission aimed at improving corporate board transparency.

The SEC’s action comes after the Division of Corporation Finance made recommendations to the Commission in a July 15 report "Staff Report: Review of the Proxy Process Regarding the Nomination and Election of Directors." The SEC has opened the proposal up to a 30-day comment period, following its publication in the Federal Register.

In a statement posted on the SEC website, Chairman William Donaldson said, "These rules are an important first step in improving the proxy process as it relates to the nomination and election of directors. The Commission believes that better information about the way board nominees are identified, evaluated and selected is critical for shareholder understanding of the proxy process regarding nomination and election of directors."

The entire board member nomination process will face further SEC scrutiny this fall. The SEC most likely will propose better shareholder access to corporate proxy statements as well as forms of proxy for officer nominations.

The SEC website outlined the provisions of the new proposals, which would require extensive information about a company’s director nominating process. According to the SEC website, these include:

  • whether a company has a separate nominating committee and, if not, the reasons why it does not and who determines nominees for director;
  • whether members of the nominating committee satisfy independence requirements;
  • a company's process for identifying and evaluating candidates to be nominated as directors;
  • whether a company pays any third party a fee to assist in the process or identifying and evaluating candidates;
  • minimum qualifications and standards that a company seeks for director nominees;
  • whether a company considers candidates for director nominees put forward by shareholders and, if so, its process for considering such candidates; and
  • whether a company has rejected candidates put forward by large long-term institutional shareholders or groups of shareholders.

The proposals also call for enhanced shareholder-director communications. The SEC statement said they include:

  • whether a company has a process for communications by shareholders to directors and, if not, the reasons why it does not;
  • the procedures for communications by shareholders with directors;
  • whether such communications are screened and, if so, by what process; and
  • whether material actions have been taken as a result of shareholder communications in the last fiscal year.

You may like these other stories...

A proposal issued by the Governmental Accounting Standards Board (GASB) last week explains how fair value measurement should be defined for state and local government financial reporting.The exposure draft, Fair Value...
By Jason Bramwell The board of trustees of the Financial Accounting Foundation (FAF) finalized a new policy on November 19 that provides the Governmental Accounting Standards Board (GASB) with direction on what...
By Jason Bramwell The Governmental Accounting Standards Board (GASB) is now offering a free online toolkit designed to assist preparers and auditors of state and local government pension plans with implementing new...

Already a member? log in here.

Upcoming CPE Webinars

Sep 18
In this course, Amber Setter will shine the light on different types of leadership behavior- an integral part of everyone's career.
Sep 24
In this jam-packed presentation Excel expert David Ringstrom, CPA will give you a crash-course in creating spreadsheet-based dashboards. A dashboard condenses large amounts of data into a compact space, yet enables the end user to easily drill down into details when warranted.
Sep 30
This webcast will include discussions of important issues in SSARS No. 19 and the current status of proposed changes by the Accounting and Review Services Committee in these statements.
Oct 23
Amber Setter will show the value of leadership assessments as tools for individual and organizational leadership development initiatives.