Federal Securities Lawyer & Attorney : Porter Wright Law Firm : Securities Exchange Law : Serving Ohio, Washington DC, Florida

The commissioners of the SEC have decided by a vote of 3-1 to restate the Commission’s view that companies can exclude proposals to allow shareholder director nominees on the company’s proxy statement.

As previously discussed here under the heading, SEC shareholder Access Proposals, the SEC was considering two conflicting proposals on the matter. Proposal 1 was to strengthen the language of the relevant rule (Rule 14a-8(i)(8)) because of a Second Circuit decision that said the language did not mean what the SEC said it meant. Proposal 2 was to scrap the former rules and allow for shareholder director nominees to appear on the company’s proxy statement.

By way of background, shareholders have a state law right to nominate and elect directors; they just can’t use the company’s proxy statement to solicit votes for their candidates. The SEC believes the philosophy of the proxy statement is in conflict if two competing parties (the company and a rogue shareholder) can use the same document (the company’s proxy statement) to solicit proxies for competing nominees for director.

The SEC, after receiving 34,000 comment letters, has decided to proceed toward Proposal 1. Several investor groups have disapproved, including the influential RiskMetrics (ISS).

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RiskMetrics Group, an international company that advises institutional investors on the corporate governance policies of publicly traded companies, has announced its 2008 proxy voting policies updates. The updates will apply to all companies with shareholder meeting dates after February 1, 2008. The updates explain how RiskMetrics Group’s ISS Governance Services unit determines whether to support various shareholder and management proposals.

As more U.S. companies move toward having shareholders approve an annual advisory vote on executive compensation (Say-On-Pay), ISS offers more information on how it will evaluate compensation programs. Currently, ISS evaluates executive compensation programs on a case-by-case basis but offers “five global principles” for appropriate compensation. High on the list is no “pay for failure,” meaning no excessive severance packages.

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The SEC has unanimously approved several new rules that will have a direct effect on the disclosure obligations of small businesses and their ability to raise capital. As previously discussed, the new rules do the following:

• Replace the current “small business issuer” category with a new “smaller reporting companies” category (defined as having less than $75 million in public equity float or revenues less than $50 million if public equity float is not calculable) and continue to require less disclosure and reporting requirements for small businesses;
• Move certain disclosure items into Regulation S-K and allow “smaller reporting companies” to elect to comply with the scaled down version of each item on an item-by-item basis;
• Eliminate all “SB” forms, but allow a phase-out period;
• Permit all foreign companies to qualify as “smaller reporting companies” if they choose to file on domestic company forms and provide financial statements prepared in accordance with GAAP;
• Shorten the holding period for restricted securities of reporting companies to six months;
• Simplify Rule 144 compliance by allowing non-affiliates of reporting companies to resell restricted securities after 6 months and allowing non-affiliates of non-reporting companies to resell after 12 months;
• Raise the thresholds that trigger Form 144 filing requirements; and
• Eliminate the presumptive underwriter provision of Rule 145, except with respect to transactions involving blank check or shell companies.
  

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The SEC announced today that Japan, China, Korea, Canada, Israel, and Australia are all on board with implementing interactive data requirements for financial reporting. SEC Chairman Christopher Cox recently met with representatives from the countries to discuss data tagging of financial reports using XBRL (Extensible Business Reporting Language).

Data tagging of financial materials is the process of identifying accounting principals with unique data tags that allow financial statements to be easily downloaded into various applications for quick comparisons over time and across industries.

Japan is requiring public companies to use XBRL data tags for financials beginning the second quarter of 2008. China and Korea already require XBRL reporting in some contexts. Australia, Canada, and Israel have plans for interactive data by 2010. No word yet on when the SEC will require data tags, but the Commission has allowed voluntary interactive financial data for over two years.

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In a recent national survey of CFOs and senior comptrollers conducted by Grant Thornton, over 75% of respondents said the SEC should revise Form 8-K rules to require reasons for all company dismissals of auditors, for all auditor resignations, and for all instances in which the auditor chooses not to stand for reappointment. The results suggest that CFOs feel auditors resign or are terminated for reasons that investors should know about but for which no disclosure is required. The crux of the current 8-K rules if an auditor resigns or is dismissed require that all disagreements between the auditor and the company be disclosed.

The complete survey follows. Note the split response to the last question.

Do you believe the roles of CEO and chairman of the board should be independent of each other?

Yes 78.73 %
No 20.81 %

Should the SEC revise 8-K rules to require reasons for all company dismissals of auditors, for all auditor resignations and for all instances in which the auditor chooses not to stand for reappointment?

Yes 75.57 %
No 21.72 %

Do you believe shareholders in public companies should have greater access to the proxy?

Yes 66.06 %
No 29.86 %

Do you believe that small cap companies who test internal controls (according to Sarbanes-Oxley) will be looked upon more favorably by investors than those who do not test internal controls?

Yes 68.78 %
No 29.41 %

Do you consider the newly issued guidance (AS 5) from the SEC on internal controls and the new audit standard for auditing internal controls to be a significant improvement over previous rules?

Yes 43.89 %
No 47.96 %

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