01/25/2010 03:25:08 PM EST
Delibert on SEC’s Adoption of New Disclosure Requirements on Board Leadership
The Securities and Exchange Commission (SEC) via Release 33-9089, effective February 28, 2010, adopted amendments which require investment companies to provide new or expanded disclosure on the leadership structure of the board, the board's oversight of risk management efforts, and qualifications for board membership. In this Analysis, Arthur C. Delibert discusses the amendments. He writes:
Proxy Statement Disclosure Changes Item 22 of Schedule 14-A, the SEC's proxy rules, contains special requirements for investment company proxy statements. Item 22(b), which governs information to be provided in connection with the election of directors, has been amended in several important respects.
Board Leadership Structure Item 22(b)(11) has been amended to require disclosure of the information called for by new Item 407(h) of Regulation S-K. This item requires disclosure of the board's leadership structure, including:
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whether the same person serves as both principal executive officer and board chair;
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whether the board chair is an “interested person” of the fund as defined in Section 2(a)(19) of the Investment Company Act of 1940;
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if one person serves in both roles, or if the board chair is an interested person, whether the registrant has a lead independent director and what specific role the lead independent director plays in the leadership of the board; and
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why the registrant has determined that its leadership structure is appropriate, given the specific characteristics or circumstances of the registrant.
The Adopting Release states that the amendments regarding disclosure of the board's leadership structure “are intended to provide investors with more transparency about the company's corporate governance, but are not intended to influence a company's decision regarding its board leadership structure.” Participants in the fund industry will no doubt remember that the SEC in 2001 attempted to require all registered investment companies to have independent board chairs. A federal appeals court suspended the effectiveness of that rule and sent it back to the SEC for further consideration of the potential benefits of such a requirement. Although the SEC did conduct some additional studies, the rule never reemerged.