United States: SEC Proposes New Disclosure Rules Regarding Nomination Of Directors And Shareholder Communications With Directors

On August 6, 2003, the Securities and Exchange Commission (SEC) voted to propose changes to its proxy rules that, if enacted, will require companies to disclose additional information in their proxy statements regarding the nomination of directors and shareholder communications with directors.

The proposed rules are based on the Division of Corporation Finance's recommendations to the SEC in its July 15, 2003 staff report. The staff report is available at www.sec.gov/news/studies/proxyreport.pdf.

Nomination of Directors. The proposed rules require disclosure of additional information regarding the way in which a company nominates its directors. Under the proposed rules, a company may be required to disclose:

• whether it has a separate nominating committee and, if not, the reasons why and how directors are nominated;

• whether members of the nominating committee satisfy the director independence requirements;

• how it identifies and evaluates potential nominees;

• whether it pays a fee to any third party as part of its nomination process or for identifying and evaluating potential nominees;

• the minimum qualifications and standards for nominees;

• whether it considers the nominees named by shareholders, and if so, the process for considering such nominees; and

• whether it has rejected candidates presented by institutional shareholders or groups of shareholders.

Shareholder Communication with Directors. The proposed rules also require disclosure regarding shareholder communications with directors, including:

• whether a company has a process by which shareholders may communicate to directors, and if not, why the company does not have such a process;

• how shareholders communicate with directors;

• whether such communications are screened and, if so, a description of the screening process; and

• whether the company has adopted any material actions in the last fiscal year as a result of shareholder communications.

You may view the SEC's proposal in its entirety at www.sec.gov/rules/proposed/34-48301.htm. If you have questions regarding these rules or their implications for your company, please contact a Davis Wright Tremaine corporate finance attorney or email us at corporatefinanceadvisory@dwt.com.