Originally published in Securities Regulation Law Journal, vol. 38, no. 3, Summer 2010

The Securities and Exchange Commission (SEC or Commission) has adopted major changes (New Rules) to the federal proxy rules, which became effective on February 28, to enhance the information provided in connection with proxy solicitations and in other reports filed with the Commission.1 The New Rules represent an attempt by the SEC to respond to the expressed desire of investors to have additional information about corporate accountability, in order to enable them to make more informed voting and investment decisions.2 The SEC recently reopened the comment period related to its proposed new rules to facilitate shareholder director nominations, and action is expected to be taken by the Commission on those rules later this year.3 Consideration of several amendments governing the proxy solicitation process proposed by the Commission with the New Rules last July have been deferred by the SEC until it again takes up its proposed new rules to facilitate shareholder director nominations. Part I of this article summarizes the background and provides an overview of the new amendments. A detailed discussion of the amendments is provided in Part II, including discussion of the SEC's response to some of the comments made on the proposed new rules and certain transitional matters. Part III analyzes the need for the new rules in the context of the previous proxy disclosure requirements and raises questions about the extent to which the Commission should be wading into corporate governance matters that are already governed by state corporate law and Sarbanes-Oxley Act (SOX) reforms.4

I. Background and Overview of the Amendments

The Commission proposed the New Rules on July 10, 2009, which are designed to facilitate improved disclosure to shareholders of public companies regarding executive compensation and corporate governance matters.5 The new disclosure requirements, which include information to be provided in annual reports and proxy and information statements, are intended to assist shareholders to better evaluate the leadership of public companies, according to the Adopting Release.6

The New Rules also are intended to provide more transparency with respect to key risks to the company and how corporate governance structure and process as well as executive compensation programs relate to those risks. For example, the New Rules require additional disclosure about the board of directors' role in risk oversight and company compensation policies and practices that are reasonably likely to increase risk-taking strategies which, in turn, could have a material adverse effect on the company. New disclosure also is required about a company's board leadership structure and the background and qualifications of directors and director nominees. The reporting of stock and option awards has been revised under the New Rules, which also require disclosure of potential conflicts of interest of outside compensation consultants in certain cases.

Specifically, the New Rules will require the following changes and additions to the SEC's disclosure requirements:

  • If risks related to a company's compensation policies and practices are reasonably likely to have a material adverse effect on the company, a discussion of those policies or practices as they relate to risk-taking incentives and management of that risk;
  • Reporting of aggregate grant date fair value of stock awards and option awards granted in the fiscal year in the summary compensation table in accordance with FASB ASC Topic 718;
  • New disclosure regarding the qualifications of directors and director nominees and the reasons why that person should serve on the board;
  • Additional disclosure about any directorships held by each director and nominee during the past five years;
  • New disclosure about consideration of diversity factors in the director nomination process;
  • Additional disclosure concerning other legal actions involving a company's directors, nominees or executive officers for the past ten (rather than five) years;
  • New disclosure about a board's leadership structure and role in risk oversight matters;
  • New disclosure about fees paid to compensation consultants and their affiliates; and
  • Disclosure of shareholder voting results on Form 8-K within four business days.

Management investment companies that are registered under the Investment Company Act of 1940, as amended (ICA), will be subject to additional disclosure requirements under the New Rules, including the following:

  • Expanded disclosure regarding director and nominee qualifications;
  • Expanded disclosure about previous directorships held by directors and nominees;
  • Expanded disclosure about legal proceedings involving directors, nominees and executive officers of funds; and
  • New disclosure about leadership structure and the board's role in risk oversight.7

II. Discussion of the Amendments

The Proposing Release drew 130 comment letters in response to the proposed rule amendments, which generally supported the objectives underlying the amendments. Many investors supported the amendments as proposed, while other commenters, including accounting and law firms, consultants, corporations, academics and others, opposed some of the proposed revisions or suggested modifications. The final rule amendments reflect changes made by the SEC in response to a number of those comments.8

Enhanced Compensation Disclosure

The New Rules amend the existing Compensation Discussion and Analysis (CD&A) requirements to broaden the scope to include a new section discussing how the company's overall employee compensation policies create incentives that can affect the company's risk profile and management of that risk. The SEC has adopted the proposed disclosure requirements substantially as proposed with a couple of modications.9 The New Rules require an issuer to address its compensation policies and practices for all employees if they create risks that are reasonably likely to have a material adverse effect on the company.10 The Commission states that companies are already familiar with the "reasonably likely" disclosure threshold used in the Management Discussion and Analysis (MD&A) rules.11 By focusing on those risks that are reasonably likely to have a material adverse effect on the company, the New Rules are focused on eliciting disclosure about policies and procedures of primary interest to investors.

In response to concerns expressed by commenters who opposed the proposed amendments to CD&A disclosure,12 the SEC modified the proposal to require disclosure only if compensation policies and practices are reasonably likely to have a "material adverse effect," as opposed to any "material effect," on the company.13 The change to "a material adverse effect" threshold represents an attempt by the Commission to focus on excessively risky compensation policies and practices while avoiding voluminous and unnecessary discussion about compensation programs that are intended to mitigate reckless or patently unreasonable risk-taking incentives. The new disclosure requirements will not be a part of the CD&A section in response to commenters who asserted that it would be confusing to include a [Vol. 38:2 2010] SEC Adopts New Disclosure Requirements discussion of a company's broad employee compensation policies and practices in a section that focuses on the compensation of named executive officers.14

The final rule includes a non-exclusive list of situations in which compensation policies and practices could raise materials risks to companies and a concomitant requirement to discuss them, which includes the following:15

  • A business unit that has a significant portion of the company's risk;
  • A business unit whose compensation program is substantially different than a company's other business units;
  • A business unit that has a significant percentage of its revenues committed to compensation expense;
  • A significantly more profitable business unit compared to other units of a company; and
  • A compensation policy or practice that is significantly different than the overall risk and reward structure of the company.16

The SEC states that this is intended to be a non-exclusive list because there could be other features of a company's compensation policies that potentially incentivize employees to create risks that are reasonably likely to have a material adverse effect on the company. Even in the above-listed situations, however, the Commission believes that a company could reasonably conclude that the requisite risk is not present requiring disclosure under the New Rules.

If a company determines that disclosure is required, the SEC has enumerated the following examples of issues that companies may need to address:

  • How the company's compensation policies and practices relate to the realization of risks by employees, such as through clawbacks or the imposition of holding periods;
  • The company's policies regarding making adjustments to its compensation policies and practices to ameliorate adverse changes in its risk profile;
  • The company's risk assessment, if any, in structuring its compensation policies or in awarding compensation;
  • The general design philosophy of the company's compensation policies and practices for specific employees and the manner of implementation of policies and practices that relate to or affect risk;
  • Any material adjustments that the company has made as a result of changes in its risk profile; and
  • The extent to which the company monitors its compensation policies and practices to assure that its risk management objectives are being met.

The SEC notes that this is a non-exclusive list of the types of disclosure that may be required in a specific situation and cautions that generic or boilerplate disclosure about risk incentives or outcomes will not be responsive under the New Rules.17

Smaller reporting companies are not required to provide disclosure under the New Rules, since they are exempt from the existing CD&A disclosure requirements. The Commission takes the position, consistent with comments which it received on the Proposing Release, that smaller companies are less likely to have the types of compensation policies and practices that are intended to be addressed by the New Rules. Although this assertion may be true, it is not intuitively obvious that smaller companies are more risk averse than larger companies. In fact, the opposite may well be true.

The New Rules do not require a company to affirmatively state that it has determined that any risks arising from its compensation policies and practices are not reasonably likely to have a material adverse effect on the company. The Proposing Release asked for comments on this issue, and several commenters responded that companies should be required to make an affirmative statement, while others said they should not.18 The SEC noted that it had opted not to include this requirement because the disclosure rules have not historically required companies to specifically address matters that they have determined are not applicable to them.

Revisions to the Summary Compensation Table

The SEC adopted revisions to the Summary Compensation Table and Director Compensation Table substantially as proposed in the Proposing Release. The amendments to the compensation tables require disclosure of the aggregate grant date fair value of stock and option awards computed in accordance with FASB ASC Topic 718,19 with a special instruction for awards subject to performance conditions. The Commission agreed with commenters that aggregate grant date fair value disclosure better reflects the compensation committee's view of stock and option awards.20 Based upon comments in the Proposing Release, the SEC has clarified how performance awards are to be disclosed under the New Rules.21

Because performance awards are designed to incentivize target performance and typically set a "cap" on attainable compensation, the Commission has elected to base grant date fair value on the probable outcome of the performance conditions in order to avoid discouraging companies from granting performance awards.22 The SEC believes that basing the value of performance awards on the probable outcome also better reflects the manner in which compensation committees determine vesting conditions in granting these awards. The New Rules [Vol. 38:2 2010] SEC Adopts New Disclosure Requirements also require footnote disclosure in the compensation tables of the maximum potential value of a performance award assuming the highest level of performance conditions is achieved.

The New Rules require disclosure of awards granted during the relevant fiscal year. The Commission noted a request by several commenters to include grants for services in a particular fiscal year even if granted after fiscal year end.23 However, because the SEC believes that multiple subjective factors, which may vary from company to company or from one year to the next, influence equity awards granted after fiscal year end for the previous year, it elected not to accept those comments. Primary among the Commission's concerns about including post-fiscal year grants was that it could result in inconsistencies and erode comparability across reporting companies.

The New Rules require companies providing Summary Compensation Table disclosure for a fiscal year ending after December 20, 2009 to present recomputed disclosure for each preceding fiscal year required to be included in the table, to facilitate year-to-year comparisons.24 The stock and option awards column amounts are to be computed based on the individual award grant date fair values, except for performance awards which are to be recalculated based on the probable outcome as of the grant date, consistent with FASB ASC Topic 718. If a person is a named executive officer for 2007 and for 2009, but not for 2008, the officer's compensation must be reported for all three years under the New Rules.25

Enhanced Director and Nominee Disclosure

Under the New Rules, the Commission expands the disclosure requirements regarding the qualifications of directors and nominees, past directorships and the time period for disclosure of legal proceedings involving directors, nominees and executive officers. Although most companies, law firms and bar association groups opposed the proposed new rules, individual investors, trade unions, institutional investors and pension funds supported the changes, which were adopted by the SEC substantially as proposed.26 The SEC agreed with the supporting comments for the most part, stating that the amendments to Item 401 of Regulation S-K will provide investors with more meaningful information upon which to make voting decisions by enabling them to better understand why a director or nominee is a good choice for a specific company.27

The New Rules require issuers to disclose for each director and any director nominee the particular experience and skills that led the board to nominate that person. The same disclosure is required for all nominees of other proponents that are required to be included in proxy soliciting materials of that proponent. The New Rules require the new disclosure to be made annually and to include all nominees and directors, including those who are not up for reelection in a particular year. The amendments contained in the New Rules are in addition to the current disclosure requirements regarding the specific minimum qualifications and skills considered by the nominating committee in selecting director nominees.

The New Rules do not specify the particular information that should be disclosed. Nor do they require disclosure of the specific experience or skills that qualify a person to serve as a committee member.28 The SEC believes that issuers and other proponents should have flexibility in determining a nominee's skills or qualifications that would benefit the company and should be disclosed in the proxy materials. However, if the specific skills, qualifications or experience of a particular person were the basis upon which the board or a proponent nominated that person, the New Rules require that these factors be disclosed as part of the person's qualifications to serve on the board.

The New Rules require disclosure of any directorships held by each director and nominee during the past five years. The purpose of this expansion of the current disclosure requirement29 is to facilitate better evaluation by investors of the relevance of a director's or nominee's past board experience and relationships that might pose conflicts of interest, including past memberships on boards of major competitors, customers or suppliers.

The SEC also adopted amendments as part of the New Rules to lengthen from five to ten years the time during which disclosure of legal proceedings involving directors, nominees and executive officers is required.30 The purpose of this extension is to provide investors with additional information concerning a person's competence and character. The New Rules also expand the list of legal proceedings that are required to be disclosed under Item 401(f) of Regulation S-K to include the following:

  • Any disciplinary sanctions or orders imposed by a stock, commodities or derivatives exchange or self-regulatory organization;
  • Any judicial or administrative proceedings resulting from involvement in mail or wire fraud or fraud in connection with any business entity; and
  • Any judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws and regulations, or any settlement to such actions.31

 

The SEC believes that this additional information will assist investors in evaluating a person's character and fitness to serve as a public company official.32

The New Rules include amendments to Item 407(c) of Regulation S-K to require disclosure of whether and how a nominating committee [Vol. 38:2 2010] SEC Adopts New Disclosure Requirements considered diversity in identifying director nominees.33 A significant number of commenters on the Proposing Release said that disclosure about board diversity is important information about a company's culture and governance practice and can help companies to more effectively recruit and retain talented employees. The amendments also require disclosure of how nominating committee policies regarding consideration of diversity are implemented in selecting director nominees as well as the committee's assessment of their effectiveness. Companies are permitted to define diversity in ways they consider appropriate.34

Board Leadership Structure and the Board's Role in Risk Oversight

The SEC believes that investors should be provided with additional information about a company's corporate governance practices (CGP) in making important voting and investment decisions. A particularly significant aspect of a company's CGP is its board leadership structure and the reasons why the company believes that its leadership structure is appropriate. Accordingly, the New Rules include amendments that require disclosure about, and the reasons for, the leadership structure of a company's board concerning the chief or principal executive officer (CEO), the board chairperson (Chair) and, if applicable, the lead independent director (LID) position.

 

The new disclosure provisions require a company to disclose whether and why it has elected to combine or separate the CEO and Chair positions as well as why the board leadership structure is suitable for the reporting company. In companies where the roles of CEO and Chair are combined and a LID is designated to chair meetings of the independent directors, the amendments require disclosure of why the company has a LID as well as her specific role in the leadership of the company.35

The New Rules also require reporting companies to describe the board's role in the oversight of risk.36 Commenters on the Proposing Release noted that risk oversight is a key competence of the board, requiring additional disclosures so that investors can better understand the board's role in the company's risk management practices. As noted by the SEC in the Proposing Release, disclosure about a board's involvement in the risk management process provides significant insight to investors about how a company perceives the role of its board and the interaction between the board and senior management in managing a company's material risks, including credit risk, liquidity risk and operational risk.37 The New Rules also require investment funds to provide disclosure about the board's role in risk oversight.

New Disclosure Related to Compensation Consultants

The New Rules include new disclosure requirements that are designed to provide investors with information upon which to better assess the potential conflicts a compensation consultant (CC) may have in recommending executive compensation and the compensation decisions made by the board. CCs commonly are engaged to make recommendations on appropriate compensation levels for executives and directors, to provide information on industry and peer group practices, and to design and implement incentive plans. Many CCs or their affiliates also are retained by a company's management to provide a range of other services, including benefits administration, actuarial services and human resources consulting services (Other Services), which can generate significantly greater fees than those generated for compensation related services. The fees for these Other Services can therefore create a risk of a conflict of interest that raises questions about a CC's objectivity.

In an attempt to highlight possible conflicts of interest involving CCs based upon their fee arrangements with a company, the New Rules include several new disclosure requirements. If the board, compensation committee or other persons performing the equivalent functions engages its own CC, and the CC or its affiliates provide Other Services to the company, then fee and related disclosure is required if the fees for the Other Services exceed $120,000 during the company's fiscal year. Disclosure is also required of whether management made or recommended the decision to engage the CC for Other Services and whether the board approved the engagement.

If the board has not engaged its own CC, fee disclosures are still required if there is a CC providing both executive compensation consulting services and Other Services to the company, provided the fees for Other Services exceed $120,000 during the company's fiscal year.38 Services related to broad-based non-discriminatory plans or the provision of surveys or information that are not customized for the company are not treated as executive compensation consulting services under the New Rules. Similarly, a limited exception is provided for fees paid to CCs retained by the company if the board has engaged its own CC because this situation has less risk associated with a potential conflict of interest.39 Although not required, a company may include a description of Other Services provided by a CC and its affiliates if useful in facilitating investor understanding of the nature of any potential conflict of interest.40

Amendments to Current Report on Form 8-K

The SEC also has adopted amendments to Form 8-K and eliminated the requirement to disclose shareholder voting results on Forms 10-Q and 10-K. New Item 5.07 to Form 8-K requires companies to disclose shareholder voting results on the form and to file within four business days after the end of the shareholder meeting at which the vote was [Vol. 38:2 2010] SEC Adopts New Disclosure Requirements held. In making this change, the SEC noted that shareholder votes often are on matters that directly affect shareholder interests, such as director elections and capital changes. Under prior disclosure requirements on Forms 10-Q or 10-K, reporting of shareholder votes could take weeks or months, which can make the information less useful to investors and markets. In response to comments on the Proposing Release, that there may be situations other than contested elections where it may take longer than four business days to determine definitive voting results, the amendments require companies to file both preliminary and final voting results in appropriate situations.41

III. Analysis of the Amendments

The New Rules are, on balance, helpful in signaling companies that the SEC continues to focus on all components of executive compensation and the relationship between a company's compensation policies and practices and its risk profile. However, there are several problems with the approach that has been taken by the Commission in the New Rules. First, arguably the amendments to existing disclosure requirements do not effectively change the mix of information already available to investors. As highlighted by several commenters on the Proposing Release, the CD&A was already quite long and very comprehensive. Second, the relationship between executive compensation and corporate risk-taking is not well understood. The New Rules, in effect, adopt the view that there is a substantially positive correlation between corporate risk-taking on the one hand, and executive compensation policies and practices on the other. Third, as predicted by several commenters, the new disclosure requirements already are resulting in a lot of boilerplate that will confuse investors or give them a false sense of comfort regarding corporate risk-taking.42

Revisions with respect to the Summary Compensation Table (SCT) and Director Compensation Table (DCT) to require disclosure of the aggregate grant date fair value of stock and option awards are helpful because they better reflect compensation committee decisions with respect to these types of awards. The SEC also struck a good balance with respect to reporting the value of performance awards reported in the SCT and DCT as well as in the Grants of Plans-Based Awards Table (collectively, Tables). The New Rules require that computation of value of performance based awards reported in the Tables should be based upon the probable outcome of the performance conditions(s) as of the grant date, with footnote disclosure of the maximum value of the grants assuming that the highest level of performance conditions is probable. The Commission also struck a fair balance in requiring disclosure of only those stock and option awards that are made during a particular fiscal year to promote uniformity among reporting issuers, while encouraging companies to continue including supplemental tabular disclosures where they would facilitate a better understanding of CD&A.

Expansion of the disclosure requirements regarding the qualifications of directors and nominees as well extending as the time frame for disclosure of legal proceedings should, in most respects, be helpful to investors in making better informed investment and voting decisions relating to corporate governance matters and the election of directors. The only exception is the amendment that requires disclosure of whether, and if so how, a nominating committee considers diversity in identifying director nominees. Although the conventional wisdom is that diversity is a good thing because it can lead to innovation and better governance, it can also lead to conflict and gridlock.43 The comments of opponents to the new disclosure requirements— that they would not elicit meaningful disclosure or could lead to heightened liability—are illogical and unpersuasive. In the case of directors who are the strategic policy-makers responsible for setting the direction of a company and selecting its senior executives, more information is almost always better.

The new disclosure requirements related to a company's corporate governance practices are timely and helpful. The required additional disclosure about the CEO and Chair roles, as well as the role of the LID, should be helpful to investors in better understanding and voting on corporate governance matters and electing directors. Moreover, a proper understanding of the corporate governance structure at the senior executive and board level of the company is necessary for investors to be able to evaluate their respective oversight and management of the company's risk policy programs and practices. The new disclosure requirements importantly give companies flexibility in describing their corporate governance structure and reporting systems in the context of identifying and managing their unique set of risks.

The new disclosure requirements related to a company's CC and possible conflicts of interest related to the payment of a significant amount of fees for Other Services, again, appear to strike an appropriate balance in terms of covering appropriate situations and setting a reasonable threshold below which disclosure is not required. These new disclosure requirements may reasonably influence management of a company not to engage a CC or its affiliates to provide Other Services for the company or, in some cases, may influence a CC not to accept a new engagement to provide compensation consulting services to a company for which it is already providing Other Services.

Accelerated reporting of shareholder voting results on Form 8-K is overdue and supported by a majority of commenters. Because shareholder interests often are affected by shareholder votes, especially in change of control, director elections and capital changes as [Vol. 38:2 2010] SEC Adopts New Disclosure Requirements well as other changes in shareholder rights, the need for a company to make timely disclosure seems obvious. The old system, under which disclosure of shareholder votes could be made weeks or even months after the shareholders' meeting at which the vote was taken, was outdated and incongruent with the recently updated reporting requirements contained in Form 8-K.

*Joris M. Hogan is a senior partner in the New York office of the international law firm, Torys LLP, and specializes in securities law, mergers and acquisitions and other complex corporate transactions, as well as corporate governance issues. Volume 38 Number 2 Summer 2010

Footnotes

1 See SEC Release No. 33-9089, which is available at http://sec.gov/rules/_nal.shtml (hereinafter referred to as the "Adopting Release").

2 See Adopting Release, supra note 1.

3 See SEC Release No. 33-9046, which is available at http://sec.gov.rules/proposed.shtml . For a summary and analysis of the proposed rules, see Joris M. Hogan, "Corporate Governance and Shareholder Democracy—Change on the Horizon," Securities Regulation Law Journal (Vol. 37:3), Fall 2009.

4 Sarbanes-Oxley Act of 2002, Public L. No. 107-204, 116 Stat. 745 (2002). For a discussion and analysis of SOX, see Joris M. Hogan, "Corporate Governance Update: Changes in the Boardroom After Enron," Securities Regulation Law Journal (Vol. 32:4), Spring 2004.

5 See SEC Release No. 33-9052 (July 10, 2009) [74 FR 35076] (the "Proposing Release").

6 See Adopting Release, supra note 1.

7 See Adopting Release, supra note 1.

8 The comments are available on the SEC's Web site at http://www.sec.gov/comments/s7-13-09/s71309.shtml .

9 The modifications include revision of the placement of the new required CD&A disclosures and the disclosure threshold. See the Adopting Release, supra note 1.

10 To the extent that risk considerations are a material aspect of the company's compensation policies or decisions for executive officers, the previous rules already required a discussion of them as part of its CD&A. See Adopting Release, supra note 1, at fn 38.

11 See Item 303 of Regulation S-K [17 C.F.R. § 229.303].

12 Commenters opposing the proposed amendments asserted that the linkage between risk-taking and executive compensation is not well understood and therefore the new requirements would not lead to meaningful disclosures. See Adopting Release, supra note 1.

13 As noted in the Proposing Release, well-designed compensation policies can enhance a company's business interests by encouraging innovation without engaging in inappropriate risk-taking strategies. See Proposing Release, supra note 5.

14 See Adopting Release, supra note 1.

15 See Adopting Release, supra note 1.

16 An example of this is a compensation practice of awarding bonuses upon the completion of a task, although the income to the company from that task extends over a significantly longer period of time. See Adopting Release, supra note 1.

17 For example, the SEC states in the Adopting Release that it does not expect to see statements to the effect that a company's compensation policies are designed to have a positive effect, or that compensation levels may be insufficient to attract or retain highly skilled employees. See Adopting Release, supra note 1.

18 See, e.g., comment letters cited in Adopting Release, supra note 1, at fn's 47–49.

19 See "Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718, Stock Compensation," available at http://accountinginfo.com/_nancial-accounting-standards/asc-700/718share-based-payment.htm .

20 FASB ASC Topic 718 requires generally that all equity awards granted to employees be accounted at "fair value." This fair value, which is to be measured at grant for stock-settled awards, is equal to the underlying value of the stock for "full-value" award such as restricted stock and performance shares, and is estimated using an option-pricing model with traditional inputs for "appreciation" awards such as stock options and stock appreciation rights.

21 Performance awards include only those awards that are subject to performance conditions as defined in the Glossary to FASB ASC Topic 718, supra note 19.

22 The SEC notes that this approach is consistent with the recognition criteria in the accounting literature and also should discourage the grant of awards that lead to inflated benchmarking values used to set awards or compensation levels at other companies. See Adopting Release, supra note 1, at fn 68.

23 See Adopting Release, supra note 1, at fn 73.

24 Commenters supported this approach as a means of ensuring year-to-year comparability. See Adopting Rules, supra note 1, at fn 81.

25 However, companies are not required to amend their previously reported compensation disclosure or to include different named executive officers for any preceding fiscal year based upon recomputing total compensation for those years pursuant to the New Rules. See Adopting Release, supra note 1.

26 Opponents cited concerns that enhanced disclosure about a director's or nominee's specialized skills or experience could lead to heightened liability and generally would not lead to meaningful disclosure. Supporters said that the amendments would be a helpful step forward in providing investors and shareholders with useful information upon which to make more informed investment and voting decisions. See Adopting Release, supra note 1 and fn's 91–104.

27 See Adopting Release, supra note 1 and fn's 91–104.

28 This is because many companies rotate directors among different committee positions. See Adopting Release, supra note 1.

29 Item 401 of Regulation S-K presently requires disclosure of any current director positions held by each director and nominee in any company with a class of securities registered under Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act. See 15 U.S.C.A. §§ 78l, 780(d).

30 See Adopting Release, supra note 1.

31 This does not include disclosure of a settlement of a civil proceeding among private parties. See Adopting Release, supra note 1 at fn 114.

32 Note that disclosure of the additional legal proceedings included in the new requirements will not be required unless they are material to an evaluation of the [Vol. 38:2 2010] SEC Adopts New Disclosure Requirements ability or integrity of the director or the nominee. See 17 C.F.R. 229.401(f).

33 See Item 407(c)(2)(vi) of Regulation S-K.

34 The SEC recognizes that different companies may define diversity differently, including, for example, to include differences in viewpoint, education, skill and professional experience, on the one hand, or differences such as race, national original and gender, on the other. See Adopting Release, supra note 1.

35 The Commission states that these amended disclosure requirements are intended to provide additional transparency about the issuer's corporate governance, but are not intended to influence a company's decisions about its board leadership structure. See Adopting Release, supra note 1.

36 The SEC accepted comments on the Adopting Release that the phrase "board leadership structure" should be used in place of "company leadership structure" to avoid potential misunderstanding that the amendments require a focused discussion of a company's management leadership, and that the phrase "risk oversight" was more appropriate than "risk management" in describing the board's responsibilities in this area. These changes seem inconsequential but harmless.

37 See Proposing Release, supra note 5. The new disclosure requirement gives companies flexibility in describing how the board administers its risk oversight function and the reporting protocols in the company between persons with day-to-day risk management responsibilities and the board or board committee charged with oversight. See Adopting Release, supra note 1.

38 Fees and related disclosure for CCs working with management on executive compensation or Other Services is not required, however, if the board has its own CC. See Adopting Release, supra note 1.

39 The SEC agrees with commenters that in this situation there are inherent checks and balances because the board has its own CC. See Adopting Release, supra note 1.

40 The Commission was persuaded by commenters that this information should not be required because it could cause competitive harm by revealing confidential and sensitive pricing information. See Adopting Release, supra note 1.

41 For example, if a company obtains definitive voting results two days after the end of the shareholders' meeting, it could report definitive voting results on Form 8-K within the four business day deadline. In that situation, the company would not be required to file its preliminary voting results. See Adopting Release, supra note 1.

42 See, e.g., "Hot Requests: Companies Disclosing That Their Compensation Policies Will Not Encourage Unnecessary Risk Taking," SEC FILINGS Insight (Feb. 25, 2010), pp.6–7.

43 See, e.g., "Why Diversity Can Backfire on Company Boards," The Wall Street Journal (Jan. 25, 2010).

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