BoardroomDirect: Issues in brief

Update on the current board issues: August 2014

Issues in brief


US Chamber of Commerce proposes corporate disclosure recommendations

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The US Chamber of Commerce's Center for Capital Markets Competitiveness (CCMC) has called for the SEC to take several near-term and long-term actions to simplify the corporate disclosure process.

In a July 29 report titled Corporate Disclosure Effectiveness: Ensuring a Balanced System that Informs and Protects Investors and Facilitates Capital Formation the Chamber urges the commission to make filings more useful to investors.

The near-term recommendations outlined in the report include eliminating requirements that a public company disclose stock price performance and the regularity and amount of a company's dividends. The Chamber also proposed that the SEC remove the requirement for companies to list the markets where their stock trades, including high and low share prices. According to the report, these details can be readily derived from other sources. Some of the long-term recommendations include revising the Regulation S-K requirements for disclosures related to Compensation Discussion and Analysis (CD&A) and Management’s Discussion and Analysis (MD&A).

“The SEC has the opportunity to enhance the effectiveness of the public company disclosure regime by modernizing it for the 21st century,” the report states. “While we believe it is appropriate for disclosure requirements to evolve, it also is important that they do so in a manner that retains the focus on information that is important to an investor’s ability to understand and evaluate a business.”

David Hirschmann, CCMC president and CEO, is hopeful the SEC will consider the recommendations as it takes a look at the corporate disclosure regime.

“The SEC should be applauded for prioritizing disclosure reform as part of the agency’s agenda, and we hope that the recommendations included in this report will help inform the SEC, as well as all stakeholders, on this important project as it moves forward,” he said.

Council of Institutional Investors Executive Director Ann Yerger, who was a speaker at a US Chamber conference held the same day as the report’s release, said investors are wary of the Chamber's efforts in the area of disclosure. She said investors are hungry for more and better information and that the call for disclosure reform is largely from companies. "Some of the information overload is inflicted by companies,” Yerger said. “They need to do a better job of conducting continual evaluations of the information they are providing."

The SEC staff released a report in December 2013 that identified areas it believes could benefit from further review. This report was mandated by Congress as part of the JOBS Act. Currently, the Commission is in the process of developing specific recommendations for updating corporate disclosure requirements.

Keith Higgins, director of the SEC’s Division of Corporation Finance, recently testified before a subcommittee of the US House Committee on Financial Services that his division is developing those recommendations.

“As part of this review, the division will consider ways to enhance the presentation and communication of information to shareholders, including how the use of technology can play a role in facilitating shareholders’ access to information,” Higgins said.

He told the committee the division is initially focusing on periodic reports and filings like the 10-K, 10-Q and 8-K, as well as working with the FASB to improve the effectiveness of disclosures in financial statements.


ISS: 2014 proxy season shows more shareholder engagement

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With the 2014 proxy season all but over, there are two major developments that proxy advisor Institutional Shareholder Services noted in its annual proxy season highlights report (access to the full report is limited to ISS Governance Exchange subscribers):

  • Letter-writing campaigns and face-to-face meetings eclipsed shareholder resolutions as catalysts for change and
  • Environmental and social issues proposals accounted for more than half of the overall shareholder proposals.

Although the 2014 proxy season was expected to “produce record levels of activism and confrontation,” in the end it produced mostly settlements and proposal withdrawals, according to ISS.

An ISS summary of the report included the following findings:

  • The prevalence of majority voting (with director resignation requirements) in uncontested boardroom elections at large-cap (S&P 500) firms jumped by more than 10 percentage points over the course of the past three years, from 69 percent in June 2012 to 79.3 percent in June 2014.
  • There was a six-percentage point rise – from 15.9 percent in June 2012 to 21.9 percent in June 2014 – in the use of majority voting across the Russell 3000 index.
  • The use of annual board elections at S&P 500 companies jumped by more than seven percentage points over the past three years from 67.4 percent in June 2012 to 74.6 percent in June 2014.
  • Management-proposed charter changes to declassify boards this season outnumber shareholder resolutions on the topic by a margin of 71 to 15.

[For more information on the 2014 proxy season, read ProxyPulse, a collaboration between PwC’ s Center for Board Governance and Broadridge Financial Solutions. The wrap-up edition is due out in September.]