Current SEC reviews of proxy statements focus on board governance disclosure. Example comment letters show what the SEC is looking for.
The Securities and Exchange Commission (SEC) has long required proxy statements under Item 7, “Directors and executive officers,” of Schedule 14A, “Information required in a proxy statement,” to include board governance disclosure under Item 407(h), “Corporate governance,” of Regulation S-K. Item 407 generally requires disclosure of the board’s role in risk oversight, including how the board executes on risk oversight and how the board’s risk oversight affects board structure. While SEC interpretive guidance and SEC staff previously have reminded stakeholders that Item 407(h) might elicit disclosure of how the board manages risk, in various recent forums, SEC staff members remarked that a current focus of reviews is whether registrants need to refine or enhance their Item 407 disclosures. Staff members said disclosures are not always sufficiently tailored to address how the registrant’s board structure and risk oversight address the unique circumstances and challenges of the registrant’s business, which is information investors need to make informed voting and investment decisions. The staff members also observed:
- Comment letters on this topic are not intended to:
- Target any particular industry or leadership structure
- Create new disclosure obligations
- Influence how companies operate or structure their board (for example, the rule’s adopting release points out, “different leadership structures may be suitable for different companies”)
- Investors should receive transparent disclosure about why a registrant chose a particular leadership structure.
- Item 407 is less prescriptive than other Regulation S-K disclosure requirements, but the Item 407 adopting release provides preparers with useful rationale and guidance.
- Staff comments in this area generally will focus on future disclosure enhancements.
