• SEC Proposes Enhanced Governance Disclosure for Proxy Statements and Registration Statements
  • September 2, 2009
  • Law Firm: Ropes & Gray LLP - Office
  • The SEC recently proposed amendments to a number of its rules and disclosure forms to enhance the corporate governance disclosures that registrants, including open- and closed-end investment companies registered under the Investment Company Act of 1940 (Investment Company Act), are required to make about director qualifications, past board memberships and legal proceedings, investment company “leadership structure,” and the board’s role in the risk management process. Certain key aspects of the proposed amendments as they apply to investment companies are summarized below.

    The SEC is proposing to expand the disclosure requirements regarding the qualifications of directors by requiring disclosure detailing for each director the particular experience, qualifications, attributes, or skills that qualify that person to serve as a director of the investment company, and as a member of any committee that the person serves on or is chosen to serve on (if known), in light of the investment company's business and structure.

    In addition to this expanded narrative disclosure regarding director qualifications, the SEC is proposing two additional changes to its director biographical disclosure requirements. First, the SEC is proposing to require disclosure of any directorships held by each director at any time during the past five years at public companies or investment companies, and second, the SEC is proposing to lengthen the time period during which disclosure of legal proceedings is required from five to ten years.

    The SEC is also proposing a new disclosure requirement that would require disclosure of the investment company’s leadership structure (including the responsibilities of the board of directors with respect to the investment company's management) and why the directors believe it is the best structure for the investment company, along with additional disclosure about the board's role in the investment company's risk management process.

    Under the proposed leadership structure amendments, investment companies also would be required to disclose whether the board chair is an “interested person” of the investment company, as defined in Section 2(a)(19) of the Investment Company Act. If the board chair is an interested person, an investment company would be required to disclose whether it has a lead independent director and what specific role the lead independent director plays in the leadership of the investment company.

    These proposals would amend Schedule 14A to apply all of these expanded requirements to investment company proxy and information statements where action is to be taken with respect to the election of directors and would amend Forms N-1A and N-2 to require that investment companies include the expanded disclosures, with the exception of director legal proceedings, in their statements of additional information. All of the expanded Schedule 14A requirements regarding directors would also apply to nominees for director.

    The SEC’s proposal also includes provisions dealing with enhanced compensation disclosure, new disclosure regarding compensation consultants and amendments relating to the disclosure of shareholder voting results, but these elements do not apply to investment companies. In addition, the SEC proposed amendments to the proxy rules, including those rules applicable to investment companies, to make technical clarifications regarding the manner in which such rules operate and address issues that have arisen in the proxy solicitation process.

    The SEC has requested comments from the public with respect to the proposed new rules. Comments must be submitted on or before September 15, 2009.