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SEC Adopts Disclosure Requirements Regarding Director Nomination, Communication Processes
Washington, DC, November 26, 2003 - The SEC recently adopted new disclosure requirements relating to the operation of board nominating committees and the means by which security holders may communicate with directors. The new requirements apply to both operating companies and investment companies.
The new requirements mostly track those proposed by the SEC in September 2003. Under the new requirements, companies will have to make additional disclosure about the company’s nominating committee, the committee’s charter, and its procedures for submitting nomination recommendations.
Consistent with the proposal, and as strongly supported by the Institute, investment companies are required to state whether or not the members of the investment company’s nominating committee are “interested persons” of the investment company.
The new requirements also require companies to disclose additional information in its proxy statement about the election of directors, including:
- a statement as to whether the board provides a process for security holders to send communications to the board;
- the manner in which security holders can send communications to the board and, if applicable, to specified individual directors;
- the company’s policy with regard to board members’ attendance at annual meetings and the number of board members who attended the prior year’s annual meeting.
As recommended by the Institute, the SEC refrained from providing guidance as to what the agency would view as appropriate procedures for security holder communications with board members.
The SEC did not adopt a proposed requirement relating to disclosure of any material action taken by the board as a result of communications from security holders. The Institute had expressed concern that the requirement could discourage companies from taking certain actions if they had to disclose that they did so in response to a security holder communication.
The SEC specifically excluded security holder proposals submitted under Exchange Act Rule 14a-8, and communications made in connection with such proposals, from the definition of “security holder communications.”
In a September comment letter, the Institute expressed support for provisions of the SEC's proposals and noted that shareholders of investment companies, like those of operating companies, may benefit from enhanced transparency of board operations.
- ICI Comments on Proposed Disclosure Regarding Director Nomination, Communication Processes, September 2003