The following is a quick summary from Peter DeSimone, Director of Programs of the Social Investment Forum of what happened at the beginning portion of Securities and Exchange Commission’s Investor Advisory Committee (IAC) meeting today. First, the IAC as a whole adopted a recusal policy (draft) that recognizes that each IAC member represents specific constituencies, further defines conflicts of interest and outlines responsibilities for IAC members in these areas.
Then, the Investor as Owner Subcommittee offered and the IAC approved two resolutions:
- The first addresses Regulation FD and recommends that the SEC staff issue interpretive guidance to suggest ways in which issuers can address Regulation FD compliance concerns surrounding the selective disclosure of material corporate governance information in private meetings with investors. A copy of the proposal appears here.
- The second takes up the issue of proxy voting transparency, and it asked the SEC staff, as part of its review of the U.S. proxy voting system (or proxy plumbing as it is being called), to study the costs and benefits of mandating a standardized tag-data format for certain proxy voting and related filings, including the proxy statement (DEF 14A), mutual fund disclosures of proxy votes (MDX) and voting results (8-K). The proposal recommends that the XBRL standard be used and notes that XBRL USA plans to have a taxonomy ready on U.S. proxy voting filings and related materials in November, but it says that the SEC staff should also review alternatives. The upshot of the proposal is that, if implemented, all agenda items, director information and other important qualitative and quantitative data points in these filings will be tagged and therefore easily placed in datasets and analyzed by investors. Link here to the proposal.
The Investor as Owner Subcommittee then advised the rest of the IAC that it would be looking into the following issues in the coming months:
- ESG disclosure: the Millstein Center’s Stephen Davis and Domini’s Adam Kanzer outlined a work plan for the subcommittee on ESG disclosure that would include testimony from experts in the field and look into several particular issues. In March will call in SEC staff to brief the subcommittee on their activities to date. Next, in April, the subcommittee will hold a meeting on the benefits of ESG disclosure to investors from a risk management perspective. Then, in May, they will look at accounting standards and triggers for disclosure of contingent liabilities in the United States and other markets. In June, they will review reporting standards, including the Carbon Disclosure Project and the Global Reporting Initiative, and look at information collected by the European Commission during its six meetings on ESG disclosure over the past year. The subcommittee plans to hold a public hearing on ESG disclosure in the summer to coincide with another meeting of the entire SEC, so that other members of the IAC could easily attend if they were interested. As far as output from this process, the subcommittee says possible outcomes could be, but are not limited to, a recommendation for an ESG disclosure rule, recommendations for areas for further study, or a white paper on the topic. They emphasized that the group as part of the work plan would look at a broad range of ESG issues, not just climate change. While many IAC members admitted that this was an emerging issue they did not know much about, several commended the subcommittee for taking on the issue and looked forward to a briefing on it.
- Financial reform: The subcommittee noted legislation pending in the House and Senate and noted that they would take up this issue again in March once they had a better idea of what would be included in the final bill. In particular, the subcommittee said that if majority voting and/or proxy access was not included that they would be looking into ways the SEC could act. For example, it was suggested that, as it does on the separate chairman and CEO issue, that the SEC could issue new disclosure requirements for companies without a majority voting standard to explain to investors why they do not.
- Political contributions: While this issue was not on the agenda officially, the subcommittee noted as part of its next steps that it would take on a work plan process similar to the one it proposes on ESG disclosure, albeit shorter, to look into possible remedies at the SEC for the recent Citizens United v. FEC case and getting better disclosure or otherwise limiting corporate political contributions.
The Investor Education Subcommittee discussed the results from a FINRA national financial capability survey.
The Investor as Purchaser subcommittee discussed fiduciary duty and mandatory arbitration.
DeSimone left before the last two subcommittees presented, so has no further details. Thanks so much to him and to SIF for his report. See also, Mark Latham’s Voter Media Finance Blog, where he frequently posts on his involvement on the IAC.
I listened on and off to the IAC but my internet connection kept getting dropped… at one point being interrupted by ABC News (strange). I did hear some discussion around “majority vote” requirements for directors and the idea of a required disclosure for that as a fallback (if legislation isn’t forthcoming). The approach would be similar to recently enacted SEC requirements to explain the CEO/Chair board structure. As I recall, the discussion boiled down to something like, let’s explore what the limits of SEC authority in this and perhaps other areas.
Kayla Gillan was asked at one point during the meeting when the SEC would come out with its proxy access rules. “Soon,” was her response. Overall, I’d have to say I am impressed with the quality of work being done by the IAC and its subcommittees. Great to be able to tune in on the meetings and to be able to submit comments each time on agenda and suggested agenda items.
On a somewhat related note, the SEC now has a page devoted to investor education on proxy voting. Spotlight on Proxy Matters is a good start. However, it leaves no answers or suggestions on the most critical questions:
- Where can I find analysis of proxy voting issues?
- How are others voting and why?
I still like Mark Latham’s idea in this area: USA Investor Education: How should the USA Investor Ed voter community divide funding among these websites/blogs?
Thanks for the report on the Feb. 22 meeting. I wasn’t able to tune in this morning. My main comment on this report is the IAC seems to be making a lot of substantive recommendations that could have a big impact on registrants’ time and resources. However, to my knowledge the registrant community is not yet being brought into these discussions. If the IAC continues down this path, I think it would be a mistake. Yes, the SEC is seen as the “investor’s advocate” and not the registrant community’s advocate, and the IAC is comprised of investors and not registrants (a topic for another day), but I think we all agree that the best way to craft good regulations is to build consensus around them from the begining. Registrants would bring to the table their perspective as the entities that will likely bear the burden of having to implement and comply with new regulations. And while additional cost alone is not a reason to nix beneficial new regulation, the SEC and investors do need to be mindful of cost, both time and money. Registrants can help identify practical and efficient ways of crafting new regulations in ways that those outside of the companies may not immediately appreciate. I sincerely hope that the IAC realizes this. Sure, registrants will have a chance to comment on any proposed new regulations during the required comment periods, but it would probably make things go much smoother if some of the issues were ironed out well before any actual rules are drafted.
Doug: Excellent comments. Yes, this is a very activist group acting on behalf of investors. One additional thing registrants can do is to submit comments to the IAC before meetings, based on their proposed agenda. They do seem to pay attention to comments and they sound like they will be inviting something like testimony.
Good points as usual, Doug. Another way for issuers to get involved might be in the taxonomy creation process. The process of creating the U.S. GAAP taxonomy included the opportunity for anyone in the world with an Internet connection and a basic understanding of GAAP to review every single proposed tag and note missing tags and any other mistakes or omissions. These comments, particularly from issuers who tested the taxonomy on their own data, were extraordinarily helpful in finalizing the GAAP taxonomy.
While proxy disclosure isn’t as complicated as GAAP disclosure, it will be pretty neat when everyone can use the same software to prepare and use and analyze data from both forms and more easily mash up the information in new and innovative ways. Also John Turner of Corefiling, which supported the GAAP taxonomy creation, has a new post today on how Inline XBRL can help preparers. http://blogs.corefiling.com/2010/02/inline-xbrl-is-easy-for-the-preparer-to-understand/ With GAAP data running well, thanks to some of the heaviest lifting in the history of structuring data (wonder where it ranks with structuring human genome and Apollo Mission data?), it is indeed time to find ways to simplify without losing the benefits of interactivity and accuracy. There’s a more technical paper at http://xbrl.org/2010TechDiscussion/2010TechDiscussion.pdf and more updates at http://xbrl.us too. Great to see so much work proceeding along these lines and the resulting opportunities for public-minded companies to contribute.