SEC Proposes Rules for Director Nominations and Shareholder Communications
Following on the heels of the Sarbanes-Oxley Act rules and a staff report recommending greater participation by shareholders in the director nomination process, the SEC has proposed changes to the proxy rules to "enhance the transparency of the operation of boards of directors."
Currently, a public company must disclose whether it has a nominating committee, and whether and how securities holders can nominate directors. The proposal expands these rules to require:
The SEC also wants to improve communications between shareholders and boards of publicly traded companies. Accordingly, the SEC has proposed that proxy statements disclose:
At present, there is no requirement that companies have nominating committees. Both NASDAQ and the NYSE have pending proposals that would require all listed companies to have nominating committees composed of independent directors. The SEC appears to be using a "disclose or explain" approach to move beyond the listing standards and require the establishment of not only nominating committees but also procedures for considering director candidates.
Comments on the proposed rules are due Sept. 15. The SEC also indicated that it may propose additional rules allowing shareholders, under certain circumstances, to use a company's proxy statement to nominate their own director candidates.