SEC's Aguilar Calls for Agency Action On Shareholder Engagement, Executive Pay

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April 21 --Securities and Exchange Commissioner Luis Aguilar April 21 urged the commission to investigate why electronic shareholder forums have not been popular despite rule amendments in 2008 to facilitate their use.  

Aguilar, in a speech at Emory University in Atlanta, noted that the SEC's intention in adopting the amendments was to increase shareholder communication with issuers, and to “uphold shareholder rights by encouraging experimentation, innovation and greater use of the Internet.”

“Unfortunately, however, reports suggest that only a small minority of U.S. domestic issuers take advantage of this innovation,” he continued. “The Commission should investigate this and determine whether our rules should be amended.”

Aguilar also reiterated his call for the SEC to move speedily on three executive compensation measures that would require companies to disclose their pay ratios, pay-for-performance and hedging policies.


Under the SEC's 2008 rule amendments, participation in an electronic shareholder forum--which potentially could constitute a solicitation subject to the agency's proxy rules--is exempt from most of the proxy rules if the conditions to the exemption are satisfied.

Meanwhile, the Dodd-Frank Wall Street Reform and Consumer Protection Act directed the SEC to craft rules to require issuers to disclose the ratio of the median pay of their employees to that of their chief executive officers. The commission further must require companies to disclose how their executive pay packages relate to corporate performance, and whether they allow employees and directors to hedge their stock holdings.

In his speech, Aguilar stressed the importance to corporate governance of accountability, transparency and engagement in the context of executive compensation and other areas.

The pay requirements are not about how much executives are paid, “but whether the decision-making process enables accountability through transparency and through shareholder engagement,” he said. “To that end, it is important to have corporate governance practices that foster these principles, and that fully and fairly explain the compensation process to shareholders.”

Shareholder Engagement

Moreover, the commissioner remarked upon the recent increase in interaction between issuers and their shareholders, citing one proxy solicitation firm's description of the current period as “the era of engagement.”

“Investors need concrete action to enhance accountability, pay-for-performance, and other goals--not just words.”
SEC Commissioner Luis Aguilar

However, one should not confuse the activity with progress, Aguilar continued. “It's one thing to start a dialogue; but it's quite another thing entirely to change behavior,” he said. “Investors need concrete action to enhance accountability, pay-for-performance and other goals--not just words.”

The commissioner added that the engagement thus far also has been limited to large institutional investors. “Small investors that own shares directly are typically frozen out of the process,” he said. “That's a problem because, often times, the interests of Main Street and Wall Street are not aligned.”

In other remarks, Aguilar congratulated Emory University on the launch of its new online publication: the Emory Corporate Governance and Accountability Review, which will explore the relationship between U.S. corporations and their shareholders. The first issue is expected this spring.

The SEC commissioner said he voiced his own views, which did not necessarily reflect those of the commission, the staff or other members.

The full text of Aguilar's speech is available at

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