‘Sloppy' Proxy Disclosures May Necessitate SEC Rule

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By Che Odom

Feb. 19 — Poorly written and inaccurate disclosures on proxy statements may be hampering corporate board elections, so the SEC will be keeping an eye on them this year to determine whether a rule is necessary, an official said Feb. 19.

After receiving investor petitions for rules addressing confusing and inaccurate proxy disclosures, the staff looked at a “broad, statistically meaningful” selection of companies and found a variety of problems, Michele Anderson, associate director in the Securities and Exchange Commission's Division of Corporation Finance, told attendees at the Practising Law Institute's “SEC Speaks” conference in Washington.

“Quite frankly, we were a little surprised by just how imprecise and, in some cases unfortunately, just outright sloppy the disclosure was,” she said.

Confusion and Imprecision

While the SEC staff did identify some inaccuracies in proxy disclosures and cards, the bulk of the problems found were more akin to ambiguity or “less than ideal,” Anderson said.

The staff found that some companies mistakenly used the “against” option when they had a plurality voting standard and the only viable option should have been “withhold,” Anderson said. She added that some companies referred to their “plurality-plus-resignation” policy as “majority voting,” though they are different voting standards.

‘Essential Right' Threatened

Some companies also said that “withhold” votes are counted in determining outcomes, while others offered no explanation of how “withhold” votes might impact the outcome of the election, Anderson continued.

“Voting in director elections is one of the most essential rights that shareholders have, and we do have some concern that this confusing or less-than-ideal disclosure threatens to undermine that right,” she said.

Companies must review their proxy statement disclosure to ensure that it not only complies with the proxy rules but is “written in a manner that clearly conveys to shareholders the applicable voting standard and the effect of each voting outcome on the election of directors,” she said.

To contact the reporter on this story: Che Odom in Washington at codom@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com